Skip to main content

IMF explaining its own contribution in destroying South Europe

by Daniel Munevar

The Independent Evaluation Office (IEO) of the IMF recently published its report on the response of the organization to the European crisis. The analysis focuses on the performance of the IMF in the context of the programs for Greece, Portugal and Ireland. It provides a valuable insight into the conflicts within the IMF itself, and especially between the executive board of the organization and its management and staff. At the hearth of this conflict was the decision making process, which led to the disregard of technical judgments and internal procedures in favor of choices of political nature that were adopted in European capitals. As such, the work of the IEO offers a more nuanced understanding of the role of the IMF in the crisis than previously available. Furthermore, it provides additional arguments to condemn the structure and outcomes of the programs that led to the bailout of private creditors while simultaneously burdening public finances with debts to the tune of billions of Euros.

In this regard, most of the criticism of the IEO focuses on the involvement of the IMF in Greece starting in 2010. The Greek program is highly relevant, not only given the large sums of money involved, as Greece became the largest debtor in the history of the organization, but also because it set the tone for the interventions that were to follow in other Euro zone countries. The IEO is specially critic of the political intervention by European countries in the decision making process of the organization regarding the Greek program. Even though the report rejects the notion that the IMF was behaving as a junior partner to its European counterparts in the Troika, namely the EU Commission and the ECB, a careful reading of the supporting material show that in many instances the IMF limited itself to follow decisions and criteria being set by Euro area governments. In theory, Greek and Euro zone interests should have been aligned. However, in practice this was not the case. As a result, the design of the Greek program followed priorities being set according to the strategic interests of those governments, setting aside concerns regarding its harmful impact on Greece.

The clearest example of this internal contradiction was the decision not to restructure Greek debt in 2010. The IEO shows the significant division among IMF staff regarding the sustainability of Greek debt that existed at the time. On the one hand, some staff members argued that “in the absence of restructuring, debt was unsustainable”. On the other, some held the view that with the right policies and sufficient financial support the country would be able to ensure debt sustainability without a restructuring. For the purposes of the involvement of the IMF in Greece, this was a key distinction to make as the rules of the organization mandated that large scale financial assistance could only be provided if debt was determined to be sustainable with high probability. Given that the staff was unable to reach an agreement on this issue, the participation of the IMF could only have taken place in the context of a debt restructuring. In any other case this would have been a rather uncontroversial decision. However, in Greece, other factors were at play.

In effect, European officials had made the decision that any financial assistance provided to Greece would exclude debt restructuring long before the IMF became involved in the discussions. In particular, both France and the ECB advocated strongly against this measure. At the time, it was perceived that a debt restructuring in Greece would create doubts regarding the safety of the sovereign bonds of other countries, causing the crisis to spiral out of control. In order to contain this “systemic risk” it was decided that financial assistance to the country should only be provided as a last resort and in what effect consisted of punitive terms. The opposition to restructure Greek debt protected the interests of French and German banks that stood to suffer steep losses on their €83 billion in loans to Greece. Thus, when the IMF joined the Troika in March of 2010, the option to restructure debt was off the table. As one IMF staff member put it “the train had already left the station”.

The IEO report highlights that at this point the IMF could have decided to refuse participation in the Greek program in order to avoid breaching its own internal guidelines. However, the eagerness of management to involve the IMF, and specifically that of Dominique Strauss Kahn, led to the disregard of this option. Instead what followed was a deliberate process of concealment of information by staff and management. The goal was to secure the simultaneous approval from the executive board of what should have been two independent decisions. The first issue was the board’s endorsement of the Greek program. The second issue was the modification of the lending rules of the IMF, in order to allow the organization to provide financial assistance in a situation in which debt was not considered sustainable with high probability. In the case of the former, the executive board was kept in the dark regarding the deliberations that had taken place among the staff regarding debt restructuring and other key aspects of the program in the run up to its approval. Even on the day the program was approved, Gary Lipsky, the senior representative of the IMF management, lied by explicitly denying to the board that the staff had entertained the possibility of a debt restructuring. As he put it: “there is no Plan B. There is Plan A and a determination to make Plan A succeed; and this is it.” In the case of the later, the required change in the lending rules of the organization was embedded in the report requesting for the approval of the Greek program. Even though the staff had discussed the need to change the rules since April, they did not draw attention to the issue even on the day the program was approved. The IEO highlights that as a result of these shady maneuvers “management’s discretion and decision-making powers were left effectively unchecked” while “the decision-making and supervisory roles of the Executive Board were undermined”.

The outcome of this process was a program that was destined to failure from its inception. When the adjustment started to get off track by early 2011, the IMF refused to acknowledge its Greek fiasco and instead doubled down on its failed strategy. The number of structural reforms required from Greece steadily increased from 15 in the initial program to more than 45 by 2012. As the list of measures multiplied after each review, so did the arguments regarding the unwillingness of Greece to reform. To cover the funding problems derived from unachievable fiscal targets, the IMF raised its privatization targets for Greece from €12.5 billion to €50 billion, despite the lackluster performance of the country in this area. In addition, the IMF was unable to develop or provide any compelling technical arguments that supported the claim that a debt restructuring in Greece represented the type systemic risk that was feared by European officials. By the time debt restructuring took place in 2012, the IMF supported program had facilitated “the most dramatic credit migration from private into official hands in the history of sovereign debt”. In the meantime, from the Greek perspective, the debt restructuring was “insufficient to reestablish solvency decisively” while “created a large risk for European taxpayers”. In short, as one of the IEO background papers points out “the decision not to seek preemptive debt restructuring fundamentally left debt sustainability concerns unaddressed, magnified the required fiscal adjustment, and thereby— at least in part—contributed to a large contraction of output and a subsequent loss of Greek public support for the program”.

Against this damning indictment, Christine Lagarde defended the actions of the IMF on the grounds that despite its shortcomings, the program “enabled Greece to remain a member of the Euro Area—a key goal for Greece and the Euro Area members”. From the perspective of the articles of agreement of the IMF, this claim holds little water. As it was pointed out by the Argentina representative to the executive board of the IMF on the fateful day that the first Greek programme was approved, “The Fund’s financial assistance is supposed to… correct maladjustments without resorting to measures destructive of national or international prosperity”. In the context of the IEO report this statement is especially relevant as it clearly points out that the IMF owed a responsibility to protect Greece as a country member, not to the Euro zone. However, the IMF neglected this obligation in order to turn the Greek program into a “holding operation” that gave the Euro area time to build a firewall and prevent contagion.

Thus, the fact that it was the mainly the Euro zone, and not Greece itself, who stood to benefit from the program should open the discussion at least two sets of related discussion. On the one hand, it’s the distribution of the costs of the Greek programme. Not only was Greece left on its own to shoulder the burden of an unsustainable debt but it also became the scapegoat for the failures of both IMF and Euro area governance. Given the clear-cut public good aspect of this type of program, its costs should have been distributed among those who stood to benefit from it. Indeed, as the IMF itself has suggested “the burden in such circumstances should not fall wholly on the member for whom the program is being granted… but should be shared more widely.” Sadly, as the recent agreement on the Greek debt shows, neither the IMF nor the Euro area are nowhere close to assume responsibility for the damage their policies have inflicted on Greece. On the contrary, the IMF has made more than 2.5 billion in profits from its loans to Greece. On the other hand, there is the issue of the legal standing of the loans provided to the country. The IEO report confirms many of the findings of the Debt Truth Committee and as such strengthens the case regarding the illegitimate and odious character of Greek debt. As such, it’s important to emphasize the call made by the Committee to repudiate the debt burden imposed upon Greece, as only the adoption of decisive measures that lead to significant debt relief will allow to start mending the deep social and economic damages caused by 6 years of crisis.

Source and references:

Comments

Popular posts from this blog

Donald Trump: the last symptom of a system that is about to collapse

globinfo freexchange
In another interesting interview with Chris Hedges, Richard Wolff explains why the Trump presidency is the last resort of a system that is about to collapse:
Finally, if everybody tries to save themselves (protection), we have a historical example: after the Great Depression that happened in Europe. And most people believe that it was a large part of what led to WWII after WWI, rather than a much saner collective effort. But capitalism doesn't go for collective efforts, it tends to destroy itself by its own mechanisms.
There has to be a movement from below. Otherwise, there is no counter force that can take us in another direction.
So, absent that counter force we are going to see this system spinning out of control and destroying itself in the very way its critics have for so long foreseen it well might.
When Trump announced his big tariffs on China, we saw the stock market dropped 700 points in a day. That's a sign of the anxiety, the danger, even in the min…

Austria has just returned to the Middle Ages

The Austrian government confirmed that the far-right is an emergency reserve of neoliberalism
globinfo freexchange
Haven't you yet convinced that the nationalists and the far-right are the most faithful dogs of the big capital? Then, look at what just happened in Austria. In the end, despite the mass protests in Vienna, Austrian employers will be able to introduce 12-hour working day without increasing wages. The relevant law adopted by the Parliament of the country, reports on Friday, July 6.



What's the first thing that Emmanuel Macron did after his election in France? He rushed to complete what Francois Hollande - the other puppet of the neoliberal establishment - had started: destroy trade unions, completely deregulate the labor market.
Yet, the media in France were promoting him as a 'progressive' (what a joke) who will stop the far-right threat.
In reality, big capital’s reserve, Marine Le Pen, is waiting in the 'bench', ready to take action any moment, now tha…

The vicious circle of modern slavery

globinfo freexchange
It sounds unbelievable, but in one of supposedly the most advanced European nations, the government plans to allow the working day to be extended to 12 hours!
We are talking about Austria, where tens of thousands of people in Vienna packed the streets on Saturday to voice their opposition to loosening labor laws to allow for a 12-hour workday and subsequent 60-hour workweek. Police in Vienna said some 80,000 people took part, while the trade unions that organized the protest said some 100,000 people attended.
What can someone say about this unimaginably absurd decision?
In an age of all this advanced technology, with AI and hyper-automation, people should work less hours, enjoying all the benefits and extra free time for their families and themselves. Yet, in the homeland of Austrian economics that led us to brutal neoliberalism, it seems that the elites push things to the opposite direction. Why? Is it just because human labor can't compete the machines?
Think ab…

The idiotic circus of terror leads us to the final collapse

There is a familiar checklist for extinction and we are ticking off every item of it. The idiots know only one word: more. They are unencumbered by common sense. They hoard wealth and resources until workers cannot make a living and the infrastructure collapses. They live in privileged compounds where they eat chocolate cake and order missile strikes. They see the state as a projection of their own vanity.

failed evolution
The idiots seen in the decay the chance of personal advancement in profit, takeover in the final days of crumbling civilizations.

Idiot generals wage endless unwinnable wars that bankrupt the nation.
Idiot economists call for reducing taxes for the rich and cutting social service programs for the poor. And project economic growth on the basis of myth.
Idiot industrialists poison the water, the soil and the air. Slash jobs and depress wages.
Idiot bankers gamble on self-created financial bubbles and impose crippling debt peonage on the citizens.
Idiot journalists and …

Bernie's revolution starts to wipe out the establishment with a huge political earthquake!

globinfo freexchange
It happened! A 28-year-old super-progressive beat the personification of the establishment in the Democratic primary! Alexandria Ocasio-Cortez won the Democratic primary in New York's 14th congressional district, defeating the establishment baron, Joe Crowley. This has been described by many, rightfully, as the biggest upset victory in the 2018 midterm election season.
What are the origins of this amazing, unprecedented result in the US political process?
We can find them in the 2016 Democratic primaries. Back then, Bernie Sanders put the foundations of a truly progressive movement that could beat the neoliberal establishment. We wrote then that Bernie speaks straightly about things buried by the establishment, as if they were absent. Wall Street corruption, growing inequality, corporate funding of politicians by lobbies. He says that he will break the big banks. He will provide free health and education for all the American people. Because of Sanders, Hillary w…

Corporate media pundits depict establishment's evident panic in front of Alexandria Ocasio-Cortez's huge victory

globinfo freexchange
Shortly after recent political earthquake with Alexandria Ocasio-Cortez's huge victory, the establishment apparatus started to react as expected.
TYT immediately responded by identifying the common narratives used by the corporate media pundits in the following video:

In this video you can track at least two kinds of typical 'arguments' provided by the neoliberal ideological framework. We wrote several times in this blog about such arguments that their carriers present them as being perfectly rational using 'logical leaps', while in reality, they are deeply irrational.
In the first argument, Steve Schmidt labels progressivism as 'dishonest', simply because it fights for free education, free healthcare, etc. The basic 'argument' is the usual: ordinary people can't have such things because of the enormous debt. Of course, the logical leap here is the fact that the neoliberal pundits always avoid to refer to the billions in bailout…

Key parts of the Matrix: the faithful little soldiers of the mainstream media

globinfo freexchange
Ludivine Bénard describes almost perfectly a key part of the Matrix of our times:
Journalistic titles hire journalists whose social background – socially, culturally, educationally and morally – fits perfectly with what the current capitalist order asks for.
People working in media are mostly middle-class types with the same interests, favouring consumerism, hedonism, libertarian individualism and unconditional Europeanism from Brussels. And they're all subject to this form of political illiteracy – they reduce reporting on politics to reporting on political personalities. The journalists and pollsters in the press turn political life into a theatrical stage, where personalities just endlessly talk and debate.
All that talk drowns out any serious criticism of the system.
The French people have been indoctrinated that way for decades – we've had more than 30 years of a certain consensus between the centrist powers of the conservative right of Les Républicains…

The 'anti-establishment' Trump admits he is more elite than the elite!

globinfo freexchange
He said it!
From the first moment in this blog, even before Trump's election, we repeatedly said that Donnie is only a reserve of the establishment.
Finally, he essentially admitted that he is more elite than the elite! Or, more establishment than the establishment if you like. During a campaign rally in Duluth, Minnesota, Trump said "Why are they elite? I have a much better apartment than they do. I'm smarter than they are. I’m richer than they are. I became president and they didn't."
Kyle Kulinski is right. Donald Trump wants to be fully integrated in the Establishment Inc. He wants to be loved by the elites, join them. He sends signals to them, saying 'I did what you want, why don't you play with me?'.
The message to the American citizens is this: do not trust the orange clown. In case that will grab your vote for a second term, he will do whatever the establishment wants, and more. Meaning, more tax-cuts for the rich, more for-pro…

The real E CORPs seek complete control of global food supply

Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world
globinfo freexchange
In the famous TV series, Mr. Robot, E Corp (which the central character, Elliot Alderson, perceives as Evil Corp), is an extremely powerful company that controls societies through consumer debt.
Yet, in the real world, a couple of mega multinationals could be proved even more ruthless. In another interesting report, James Corbett exposes the ultimate goal behind the merge of two of the biggest corporations in the food, medicine and agricultural sector. These are the real ECORPs:
What does a pharmaceutical giant have to gain from buying out and merging with an agrichemical giant, especially one that carries as much baggage as Monsanto?
If the connection between these corporate behemoths seems tenuous, then perhaps the key to understanding it is presented in that 1995 quote from former Monsanto CEO Robert Shapiro: “We’re talking…

Three years from the coup against Greece by the European Financial Dictatorship

globinfo freexchange
Three years passed (July 5, 2015) since the European Financial Dictatorship through the European Central Bank (ECB) and its head Mario Draghi, was forced to proceed in an open financial coup against Greece.
The start of current decade revealed the most ruthless face of a global neo-colonialism. From Syria and Libya to Europe and Latin America, the old colonial powers of the West tried to rebound against an oncoming rival bloc led by Russia and China, which starts to threaten their global domination.
Inside a multi-polar, complex terrain of geopolitical games, the big players start to abandon the old-fashioned, inefficient direct wars. They use today other, various methods like brutal proxy wars, economic wars, financial and constitutional coups, provocative operations, 'color revolutions', etc.
In this highly complex and unstable situation, when even traditional allies turn against each other as the global balances change rapidly, the forces unleashed are abs…